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arXiv · 2408.06612

Double Robust high dimensional alpha test for linear factor pricing model

Ping Zhao·Long Feng·Hongfei Wang·Zhaojun Wang
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Abstract

In this paper, we investigate alpha testing for high-dimensional linear factor pricing models. We propose a spatial sign-based max-type test to handle sparse alternative cases. Additionally, we prove that this test is asymptotically independent of the spatial-sign-based sum-type test proposed by Liu et al. (2023). Based on this result, we introduce a Cauchy Combination test procedure that combines both the max-type and sum-type tests. Simulation studies and real data applications demonstrate that the new proposed test procedure is robust not only for heavy-tailed distributions but also for the sparsity of the alternative hypothesis.

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Ping Zhao, Long Feng, Hongfei Wang, Zhaojun Wang. 2024-08-13. Double Robust high dimensional alpha test for linear factor pricing model. https://arxiv.org/abs/2408.06612

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